Podcast (Part 1)

December 10, 2009

Anthony Vitiello:  Greetings and welcome to the next in a series of podcasts from Volt Consulting Managed Service Programs. This is part one of a two-part podcast continuing our series devoted to best practices and the selection, implementation and ongoing maintenance of human capital management programs.

 Today’s discussion will examine best practices for maintaining controls over a services procurement program. Specifically, we’ll be investigating the critical role of compliance in ensuring the success of any organization’s efforts in the realm of human capital management.

 My name is Anthony Vitiello and I am the moderator for the today’s panel discussion. I am honored to introduce the esteemed professionals who will be sharing their expertise with listeners today.

 Please welcome the executive editor of renowned supply chain management blog, Spend Matters, Mr. Jason Busch. Jason’s writing on the Spend Matters blog, and in many other commercial outlets, focuses on procurement, politics and economic issues. Jason has significant first-hand experience developing and marketing technologies, services and content products.

 Throughout his career he’s helped hundreds of companies save money through strategy sourcing and related initiatives including finding the right technologies to kick their organizations into overdrive.

 Aside from developing Spend Matters and his transactional advisory work, Jason also serves as the managing director of Azul Partners, a consultancy focused on short-term, expert engagements often around speaking, training and knowledge transfer for Global 2000 clients, including many of the largest software vendors, consultancies and outsourcing providers.

 How are you doing, Jason?

Jason Busch: Great to be here.

Anthony Vitiello:  Thanks for coming. Our other panelist today is Ms. Julie Smith, the head of Managed Service Programs for all Volt Consulting MSPs in Europe, the Middle East and Asia. Julie leads a network of procurement and human resources professionals plying 21st century business process outsourcing strategies in the complex multi-national environment that is EMEA.

 Her achievements in this daunting endeavor are extraordinary and Ms. Smith leads the industry in proliferating progressive supply chain management methodologies. She was recently recognized by Supply & Demand Chain Executive magazine as a Pro To Know in their 2008 Pros To Know issue.

 In 2008, Julie was also a finalist in the Women’s Business Awards under the category of best executive in EMEA. Julie oversees the operational delivery of nine discrete MSPs across ten countries in EMEA and counting, managing 200 million pounds in annual spend on non-employee and permanent placement labor.

 Welcome, Julie, and thanks for being here.

Julie Smith: Thank you. Lovely to be here.

Anthony Vitiello:  Great. Let’s get started because we have a lot of ground to cover on this mission-critical topic. Before we delve deeply into the topics related to the different kinds of compliance necessary to ensure success in maintaining control over any services procurement program, let’s nail down some basics by way of definition of terms.

 The term services procurement means different things to different organizations, so let’s take a moment here to sort of define it. This first question, I guess, will be for you, Jason. Is services procurement simply contingent workforce planning or is it more than that?

Jason Busch: You know, I think you’ve got to look at a bit of history of services procurement and I’ll try and do a very distilled 30-second version here. But historically, as we’ve thought about services procurement, it’s been largely a non-procurement function; it’s been something handled by HR, it’s been handled by individual contributors in the organization, for example, within IT who’ve had a given need.

 But in the past couple of years we’ve seen this term “services procurement” begin to take on new meaning for those actually within the procurement and supply chain function.

 So, really, the simple answer, as I like to joke with procurement organizations I talk to, is services procurement is probably the spend where you haven’t managed suppliers in the past but business has managed it for you and now it’s been handed to you.

 But what I like to say, you know, beyond that is depending on the industry you’re in, services procurement represents a gigantic portion of what you buy overall. It can be anywhere between 15% and 75% of your spend depending on industry. And in many cases, a large chunk of that is contingent labor.

 I would say semantically different organizations define services procurement differently. A number I talked to think of it very narrowly as just contingent; others also begin to think of it encompassing such areas as legal, marketing and consultant and outsourcing spend as well.

 But for the purposes of how the majority of companies work on services procurement, I like to first reference that the bulk of it is still contingent and we should look at it first in that regard.

Anthony Vitiello:  Yeah. You know, you did mention that the responsibility for handling services procurement requires activities and functions that straddle several functional areas within a typical organization.

 In your experience, Julie, who owns the risks inherit in services procurement strategy and why? Like, for example, what are the roles of procurement, IT, HR and how they interact with one another?

Julie Smith: I would say it would vary by company. We often see the procurement take the lead in introducing programs with HR and IT as key stakeholders. But then in some companies HR is as deeply involved as procurement. It really does depend on the culture of the company as to who takes that responsibility.

 The most effective programs, however, are where all of those key stakeholders are pushing the mandate.

Anthony Vitiello:  It does sound like over time as these things have grown in adoption that there’s been a natural evolution of the outlook regarding services procurement as the organizations that maintain programs have grown more mature in their perspectives regarding this critical link of the supply chain.

 Can you, Jason, characterize for us how you see things changing and what trends you’ve identified lately in the marketplace?

Jason Busch: Sure. I mean, I think the most simple one is obviously the state of the economy. And for the longest time, especially in a rising market and the tight labor market, organizations were simply happy enough to get talent from a contingent perspective. And many didn’t look very closely at the compliance rules they had to follow, they didn’t look closely to make sure that they were benching their programs for the best rates.

 But what happened, unfortunately, was the downturn. And along with that, going back a handful of years, we also saw some major legislation in North America and also in Europe as well around compliance which we’ll probably talk about in a minute around SOX and other areas.

 But if I were to pinpoint one thing that happened, it was the economy. And as things began to fall off, we saw cost cutting across the board become a huge component of the main way organizations could drive margin. And procurement was front and center in that effort.

 And because they had extended so much effort so far in direct materials categories, their efforts turn indirect. And as they looked at indirect many saw that services were just a giant component of their overall spend.

 The reason they hadn’t looked at it before is because it was very complicated and they couldn’t apply the same rules, the same technologies as they were using in the rest of their business. And as they began to look at it they also realized we really needed to market more to the business itself to win them over that we could do as good a job or better managing services spend.

 So, I would say it’s really a combination of factors. It’s certainly the economy driving a serious interest in services procurement, it’s procurement realizing what the opportunity is, it’s procurement better marketing itself as a service provider to the business being able to handle these categories.

Anthony Vitiello:  Excellent, excellent. Well, let’s move to the next question which, I guess, is another question focusing on definitions and terms before we delve, again, too deeply into the individual compliance best practices.

 But similar to the often, you know, contradicting definitions of services procurement, it seems that different organizations have different definitions of compliance itself. So, perhaps we can discuss compliance as it relates to human capital management and the difference in terms that different organizations use.

 Can we, perhaps, focus in on clarifying what compliance means to both of you? I guess we could start with you, Jason, talking about program compliance to business rules and legislative compliance such as SOX and other things of that nature.

Jason Busch: Sure. Probably worth separating that into two different responses: both around internal rules and compliance and then regulatory compliance as well.

 But if we think about compliance to internal rules, you know, the number one area I think of when it comes to cost is making sure that what I am paying my contingent workforce is in line with benchmarks in the industry. And historically many organizations have not led and gone down that path making sure that their rate cards are set up properly and the pay rates correct and everything related.

 However, the other angle besides just cost is internal compliance to specific work rules, to specific rules a company might have to adhere to because of its customers.

 So, I think of an organization I spoke with a few weeks ago which is a contractor to many defense organizations who serve the government. They need to apply the same rules and security checks, background checks, to their contingent workforce as their regular workforce and they’ve got to document that for their customers and their customers’ customers.

 Now, obviously that is just one example, but there’s many other which go through to more typical organizations including the specific onboarding process, literally things as mundane as getting a badge for the right worker through to more complicated checks around insurance certifications and related requirements as well.

 Now, if we kind of step this up to a regulatory compliance issue, you know, the shot heard around the world that changed everything really began with Andersen and Enron which resulted in SOX. There were some other scandals at the time involving Worldcom, but really, those two kind of set it off.

 And one of the major components of SOX compliance required that organizations sign off on the controls surrounding their own workforce as well as their contracted workforce in terms of financial systems controls.

 They also had to, at that point in time in going forward, really look and make sure that their suppliers had similar financial controls in place if, in fact, their employees would be onsite serving in the role of contract workforce. So, SOX really began to change things as well.

Anthony Vitiello:  You know, it’s really interesting and I would imagine, Julie, from the more global perspective that there is probably a large patchwork of different legislative compliance rules that you have to contend with when faced with programs that straddle multiple geographies and multiple nationalities.

 Can you perhaps speak to what compliance to legal legislation from the global legislative point of view that you run up against?

Julie Smith: Of course. And I think that’s true. It is quite a mine field when you start going out into multiple countries and looking at the global legislation. But, really, I think key is that we’re making sure that we’re mitigating risks to our clients and we’re making sure that we’re providing the right working conditions for the contractors (inaudible) to those clients.

 And I think it’s really with regard to our programs that there’s three key factors that as a managed service program provider we need to know about every single country we can move into to deliver, legally, a program. And first we have to understand what solution we can legally deliver into that country and what we need to do as a company. So, what Volt Consulting needs to do as a company to operate so that we can determine the correct and most applicable business model and to establish all of the legal obligations that we need to operate in each country.

 We also need to validate with our suppliers what is required by law for suppliers to operate and supply to the different contingent labor categories. So, suppliers in the European countries, many different licenses to provide the different labor types. We need to know what these are and we then need to qualify that supplier base accordingly to ensure that they are operating in line with the legislation.

 We also need to ensure that each of those suppliers is working in line with the code of conduct per each country for the supply and organizations.

 And then we’ve got the country legislation. And as an MSP we’re not registered to provide legal advice. But what we can give is business advice and each client that we go to will have their own interpretation of what the recruitment legislation means to them which leads to a certain amount of ambiguity.

 Therefore, our role is consultative, providing best practice and lessons learned to our customers, but the client will ultimately decide upon the risk stance that they may wish to take regarding the legislation. We can then engineer our programs to reflect and capture those. For example, approvals, tenure rule, (sounds like: comparative) pay and non-returning workers.

Anthony Vitiello:  Well, it sounds that whether these are challenging as domestic or abroad that there are a lot of moving parts. So, I would imagine there are a great deal of challenges that companies are faced with trying to drive a strict compliance regimen.

 Jason, could you perhaps talk about some of the outside of typical expertise of the program and legal compliance issues that companies might be challenged by?

Jason Busch: Sure. And I think just to really take a step back for a minute and look at the broader issue of compliance and driving program results, one of the major issues of services procurement even when procurement takes it on for the business is that you still have a lot of decentralized stakeholders making decisions.

 So, how can you use a platform—and I use platform both physically as a technology platform but also metaphorically as really a policy platform—in place internally to drive effective compliance and results at the edges of the business.

 So, for example, organizations really need to be able to look at such things as complex rate structures and let those individual decision makers tasked with the requisition, say for a software development resource or web development resource, how can you account for overtime and mark-ups in volume and tiered discounting as you get into larger relationships? How can you ensure that P.O. transactions actually take place against specific pricing structures and preferred suppliers?

 So, being able to not only help manage and own this process as procurement, but enable users who might not necessarily be within the procurement function to be compliance champions as well.

 And that’s literally just getting into the business side of the contractual relationship. There’s the whole legal side as well. And as Julie (inaudible), as we get into different regions – and I’m much more familiar with my home base which is North America, we have a lot of hot button issues around co-employment and other areas as well.

 So, we’ve got to think about financial compliance internally making sure we’re getting the best total cost results for our contingent workforce initiatives. We also need to think of the regulatory side and empower all the folks in our organization who might not be managing the program but certainly affect the program to make sure they have the right set of tools available.

Anthony Vitiello:  That’s good stuff. Julie, I’m sure there are some other changes maybe from the EMEA perspective that you could point out for the audience.

Julie Smith: The biggest challenge is that things continually change and we work very closely with our own internal legal counsel and they are responsible for updating us on any changes that are coming up. And we also use external counsel to countries where we don’t physically have that presence to keep us up to date. 

 And when we have that information we’re very proactive from bringing it to the attention of our customers so that we can participate in consultations and start to talk to our customers at a very early stage on the potential impacts and the risks of anything that the new legislation is bringing in which enables us to start planning any necessary changes to processes to enable them to enforce their compliance. And it obviously aids us in executing those changes as needed.

 I can give you an example. In the EU right now there is a workers’ directive that’s going to be enforced in October 2011 and we’re already talking to our current customers preparing them for the impact that those changes are going to have on their contingent label workforce.

 Internal change management is always difficult and change management of any kind needs to be handled and planned with great care. Legal changes are always easier to kind of obtain the buy-in of the customer uses as they really cannot be changed; you know, it’s law. However, program change compliant is far more difficult, especially, for example, if someone in HR makes a decision to change an approval process and that change in approval process makes it much more difficult for a manager to get a worker on board and because it’s been more difficult it’s taken them longer, that manager doesn’t end up meeting his project deadlines because of the delay.

 This causes frustration and resentment of that policy. And I strongly believe that communication is key to the change management and this is where the program can be really effective and act as that mediator ensuring that all parties are kept involved in that change process and to provide education, justification and the reasons for the change.

Anthony Vitiello:  Excellent. Thanks, Julie. Well, this concludes part one of this two-part podcast. Please download and listen to part two of this discussion entitled, “Maintaining Controls Over Your Services Procurement Program: Focus on Ensuring Compliance at Every Level” wherein Julie and Jason will illustrate the benefits of strong compliance policies and how to go about ensuring that they exist within your services procurement program.

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